FCPA Compliance and Ethics Blog

August 23, 2012

What is Your Integrity Capital?

Compliance practitioners often hear that bribes must be paid in emerging markets to get anything done. Indeed a recent survey by CEB (formerly Corporate Executive Board) of more than 700,000 employees of multinationals around the world, discussed in a Harvard Business Review article, entitled “Greased Palms, Giant Headaches”, by Dan Currell and Tracy Davis Bradley reported that there was a large jump in the payments of bribes, providing or receiving improper gifts and failures to report conflicts of interest in the BRIC (Brazil, Russia, India and China) countries over developed countries. Is bribery really pervasive in those countries or is it simply the perception? On the other hand, as Andre Agassi was found to say “Perception is reality.” Certainly the story by the New York Times (NYT) about Wal-Mart in Mexico paying over $24 million to be the first big box retailer into the Mexican market may lead some credence to that perception. While the authors did not specifically address the Foreign Corrupt Practices Act (FCPA) or UK Bribery Act, they did report that “bribery and corruption is the second leading category of unlawful activity by Western companies in emerging markets”.

However, Currell and Bradley focus their collective attention on the US corporate headquarters in their article. They note that “Our research suggests that one driver originates at headquarters-multinationals’ increasing growth imperative in emerging markets.” While it certainly is a recognized and valid long-term growth strategy to identify and develop new markets, the authors believe that companies are now thinking that they can “meet our targets by increasing revenues quickly in markets” like the BRIC countries. In other words, long-term strategic plans suddenly become “short-term necessities” and this change can increase “the pressure on local employees to make their numbers, tempting some to break the law.”

What is a company to do when short term goals cause pressure, pressure and more pressure for increased revenues? The authors acknowledge that a robust compliance program is a key component for protection against bribery and corruption by employees, but they believe that more is needed. They identify “Integrity Capital” as a key component to “lower levels of misconduct along with higher levels of reporting when employees do witness wrongdoing. Integrity capital is embedded in the culture, not instituted through controls, and it helps shape employee behavior, which could include offering a bribe or defrauding the company.” The authors identify the following as five factors of Integrity Capital:

  1. Management takes action when it becomes aware of misconduct. This means that companies “must insist on a swift response to complaints, unbiased investigations” and even “public hangings” of offenders.
  2. Employees are comfortable speaking up about misconduct and don’t fear retaliation. While this would seem to be self-evident, it is a sad fact that in many companies, whistleblowers are ostracized or even blamed for the conduct in question. Witness the initial response by Wal-Mart management in the 2005 time frame to allegations of corruption made by an employee with knowledge of the conduct. He was blamed for the conduct at issue. Even in the recent allegations brought to light with EADS, the whistleblowers were marginalized or worse by the company.
  3. Senior leaders and managers treat employees with respect. The authors believe that in addition to not mistreating whistleblowers, companies should “praise employees who have the courage to call out wrongdoing.”
  4. Managers hold employees accountable. Simply put, if an employee engages in bribery or corruption, they need to be disciplined or discharged. Allowing high revenue generators or high income generating territories or business units to avoid scrutiny and/or sanctions is a clear recipe to destroy the integrity of a compliance program.
  5. High levels of trust exist among colleagues. Your employees must believe that the company will take allegations seriously and will act on the information that they provide.

The authors conclude their article with three different concepts which they believe will minimize the occurrences of bribery and corruption within an organization. First, a company should use commonsense observation. If an emerging market shows success in “speeding things along”, such as regulatory approvals for the construction of bricks-and-mortar facilities, this made need to be looked at closer. Since regulatory approvals do not happen quickly in BRIC countries, it may be that the skids were greased with cash to pay bribes. The second is that a company must be proactive in seeking out and obtaining information from employees about allegations of bribery and corruption. The authors “advise companies to also proactively solicit information from frontline employees and to use surveys or online tools to guarantee anonymity” in reporting allegations of bribery and corruption. Lastly, the authors insist that companies have organization justice so that if there are credible reports of misconduct they are not swept under the rug.

Currell and Bradley provide interesting observations which can be used by a compliance professional to evaluate the sufficiency of their compliance program. Their thoughts on things to look for from an emerging market provide solid guidance on searching for potential red flags which might warrant further investigation from internal audit or a FCPA based compliance audit team. There are a number of practitioners and ethicists who talk about the need for ethics in any company culture to compliment a compliance program. The article by Currell and Bradley provides some of their guidance on what that may look like.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

August 15, 2012

EADS and Tales of Whistleblowers: A Compliance Nightmare?

What is a compliance professional’s worst nightmare? Last week in Episode 49 of This Week in FCPA, Howard Sklar and I speculated on why the UK Serious Fraud Office (SFO) would announce it was opening an investigation into the activities of the UK defense contractor, EADS. On Tuesday, in a Financial Times (FT) article, entitled “Emails tell of fears over EADS payments”, reporter Carola Hoyos identified some of the reasons that EADS may be under investigation. Hoyos reported that almost five years ago, senior executives of the company were “alerted to questionable payments made to Cayman Island bank accounts and lavish gifts given to the Saudi Arabian royal family and military…”

There were two different instances where an employee brought up these payments to senior officials in the company. Mike Patterson, a senior controller for GPT, a subsidiary of the company, was concerned about “unexplained payments to the Cayman Island bank accounts for Simec International and Duranton International, which totaled £11.5M between 2007 and 2009.” Hoyos reported that Patterson “alerted his superiors about the payments as early as 2007” regarding the payments and his concerns. Patterson continued to raise his concerns internally within the company and by 2010 he had notified EADS Chief Compliance Officer (CCO) Pedro Montoya of these concerns.

Unfortunately, it appears that no one took Patterson’s concerns very seriously. Hoyos quoted from a Patterson email he was provided, which read “I think Pedro Montoya now ignoring me is sufficient indication we are wasting our time internally. Our concern for EADS future seems to be greater than [EADS] first line managers…I need to make a decision whether I persevere internally, whilst suffering mind numbing boredom, or whether I take the statutory directors actions to the authorities.” Hoyos noted that Patterson “transferred to another role within GPT.”

It turned out that Patterson was not alone within the company in noticing red flags over these payments. Ian Foxley, a retired British lieutenant-colonel had joined the company in the spring of 2010 stationed in Saudi Arabia, to oversee a £2M contract between the British Ministry of Defence (MOD) and the Saudi Arabian National Guard. By December of 2010, he was fleeing Saudi Arabia with “evidence of apparent irregular payments to Saudi officials.” Hoyos reported that while Foxley notes early on the suspicious payments, it was not until that someone had not only noted the same red flags but had reported them internally that he took action. The suspicious payments revolved around “bought-in services” which were payments for unexplained goods or services in a contract with a third party. Previously Patterson, in his role as financial controller, had refused to sign off on these contracts because of these “bought-in services” payments.

Although it was not clear from Hoyos article how Foxley became aware of the concerns raised by Patterson, he reported that “The morning after he discovered Mr. Patterson’s concerns he assessed the emails that Mr. Patterson had told him he had written over the previous three years.” This led to Foxley fleeing Saudi Arabia with documents of these suspicious payments. Foxley later raised his concerns “with the business secretary, the SFO and the Institute of Chartered Accountants.”

Hoyos reported that EADS “launched an internal investigation” in mid-2011 and that it is co-operating with the SFO. However, he also reminds readers that UK Prime Minister at the time, Tony Blair, halted a SFO investigation into corruption allegations surrounding another UK defence company BAE, in 2006. BAE later paid a fine to the US government for violations of the US Foreign Corrupt Practices Act (FCPA) of $400M.

So what are some of the questions raised by these allegations? While not specifically stated it appears that the original whistleblower, Mike Patterson, was so marginalized in his job that he was basically twiddling his thumbs all day at work. Foxley so feared for his safety that he gave “the slip” to his employer when fleeing Saudi Arabia. What does that say about EADS and its internal whistleblower program? What about the CCO and those higher up within the company, what role did they play? Finally, what is the role of the British government, not only the MOD as a very interested party, but the party in power; will they allow the SFO to investigate these allegations? As Alice Cooper might say, “Welcome to my nightmare?”

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

July 26, 2012

FCPA and Bribery Act Hotlines: Staying Out of Hot Water with Other Jurisdictions

It is finally here. Today is the Opening Ceremony of the Games of the XXX Olympiad in London. The first Olympics I can remember watching were the 1964 Games in Tokyo. I was enthralled with watching the world’s greatest athletes compete and the boyhood joy about the Games still exists for me. And, for my money, the best sporting event will be held in world’s greatest city. It should be a great show for the next two weeks. They are a must watch for me and I hope that you will enjoy them as much as I intend to.

Today’s compliance thoughts relate to the Olympics in another way. I recently came across not only a must read article for the compliance practitioner but also a must save article. In the International Lawyer, Winter 2011*Volume 45*Number 4, I came across an excellent article, entitled “How to Launch and Operate a Legally-Compliant International Workplace Report Channel” or in Foreign Corrupt Practices Act (FCPA) parlance, a hotline. It was authored by Donald Dowling of the law firm of White and Case. Dowling provides a very useful guide to help navigate the challenges of setting up a multi-national whistleblower’s hotline, such as is required under the FCPA and UK Bribery Act. The majority of his article “analyzes the six categories of laws that can restrict whistleblower hotlines abroad, focusing on compliance.” You should obtain a copy of this article and keep it for reference in regards to your company’s hotlines. It is available on the White and Case website, by clicking here.

1.      Laws Mandating Whistleblower Procedures

This group of laws “comprises mandates that require setting up whistleblower hotlines in the first place.” This includes the US Sarbanes-Oxley (SOX) as well as other jurisdiction laws which generally protect whistleblowers from retaliation but do specifically require any hotlines be set up on a company wide basis. Dowling also found a couple of countries, Norway and Liberia, which require general receiving and processing of “public interest disclosures.”

2.      Laws Promoting Denunciations to Government Authorities

This category of laws generally related to legal requirements for the reporting of illegal acts to government authorities in two ways. First, these laws encourage whistleblowing to government which then compete with employer hotlines by enticing internal whistleblowers to divert denunciations from company compliance experts and over to outside law enforcers who indict white collar criminals. This first approach is found in Dodd-Frank, which offers bounties. Second, these “laws that require (as opposed merely to encourage) government denunciations rarely except corporate hotline sponsors. These laws therefore force hotline sponsors to divulge hotline allegations over to law enforcement.” This second approach is found in SOX which “requires an employer to offer internal hotline procedures”.

3.      Laws Restricting Hotlines Specifically

This category is exemplified by European data protection laws which act to restrict companies’ freedom to launch and operate reporting programs. Dowling believes that these laws are based upon the fact that Europeans “see hotlines as threatening privacy rights of denounced targets and witness”. Also this would seem to be in response to the totalitarian past from the World War II era. The author identifies what he termed “the four biggest hurdles” set up to frustrate hotlines in EU jurisdiction. They are “(1) restrictions against hotlines accepting anonymous denunciations; (2) limits on the universe of proportionate infractions on which a hotline accepts denunciations; (3) limits on who can use a hotline and be denounced by hotline; and (4) hotline registration requirements.

4.      Laws Prohibiting Whistleblower Retaliation

This category will be familiar to US compliance practitioners through the applications of US laws such as SOX, Dodd-Frank and numerous state whistleblower statutes. Additionally, the author lists numerous foreign jurisdictions which have such laws. But here he believes that the key is communication because in many countries and foreign jurisdictions, there is no tradition of protection of persons who make reports against superiors so that an “employer needs to overcome worker fear of reprisal for whistleblowing.”

5.      Laws Regulating Internal Investigations

Typically laws on internal investigation do not impact hotlines because a hotline is a “pre-investigation tool.” However, the author believes that No. 4 above, communication by the employer is critical to complying with laws that enact procedural safeguards for persons under investigation. Heavy-handed communications about a hotline could blow back against employers in claims by employees that “an employer rigged the investigation process.” So companies should ensure that communications about hotlines do not convey an “overzealous approach to complaint processing and investigations.”

6.      Laws Silent on, but Possibly Triggered By, Whistleblower Hotlines

Here the author recognizes that the title of this category “is necessarily vague and determining which laws fall into it is difficult.” Nevertheless, he writes that the most “likely candidates are data protection laws silent on hotlines and labor laws imposing negotiation duties and work rules.” Regarding the former, the author argues that hotlines are not databases but conduits for the transmittal of information. He acknowledges that EU data privacy laws reject this distinction and treat hotlines as if they were databases where information is stored. He does not identify other jurisdictions which yet take this aggressive approach but he believes this may become a trend. The labor law issue is also tricky and may turn on the interpretation of whether the institution of a hotline is viewed as substantive change in working conditions under a union-management labor agreement and therefore subject to collective bargaining.

In addition to all information I have only skimmed what is in the body of the text; the author also provides a handy chart which has the following headings:

Jurisdiction Is the authority binding law? Must confine hotline to certain topics only? Are anonymous whistleblower calls ever OK? Is outsourced (vs. in-house) hotline favored? Must disclose hotline to data agency?

So just as the London Olympics is a must watch for me, this article is a must read and a must download for compliance practitioners.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

February 3, 2012

The Gun Sting Case Defeats and What it means For FCPA Enforcement? Absolutely Nothing!

In a stunning rebuke of the Department of Justice’s (DOJ) trial strategy, all defendants in the second group of Gun Sting defendants walked out of the federal courthouse, still free. Two defendants were acquitted and the remaining three defendants were granted a mistrial. One defendant was dismissed at the close of the prosecution’s case in December as was the DOJ’s Foreign Corrupt Practices Act (FCPA) conspiracy count against all defendants. So, as the FCPA Professor noted, the DOJ is 0-10 in trial prosecutions in its Gun Sting case. However, that stark number does not tell the full picture of what is going on in enforcement of the FCPA.

First and foremost, not all of the Gun Sting defendants have been acquitted or even been granted mistrials, three defendants, Haim Geri, Daniel Alvarez and Jonathan Spiller all pled guilty. A fourth defendant, Richard Bistrong, reported by the FCPA Blog to be “the key intermediary between the FBI and the shot-show defendants”, pled guilty to one count of conspiracy to violate the FCPA and other statutes in 2010. So to imply the DOJ is zero in obtaining guilty verdicts and pleas for all defendants in its Gun Sting case is not precisely correct.

The defeats in the Gun Sting trials, coupled with the overturning of the guilty verdict in the Lindsey Manufacturing case and the O’Shea acquittal, have lead many commentators to make one of two arguments: (1) the DOJ is getting is comeuppance for ‘aggressive’ prosecution of the FCPA; and (2) coupled with the claim that the FCPA hurts US competitiveness overseas, it is the end of FCPA enforcement as we know it. Both positions are far wide of the mark. So what does the DOJ record for the two Gun Sting trials mean for FCPA enforcement? Absolutely nothing! As reported by the FCPA Blog, in 2011 15 companies settled FCPA enforcement actions by paying a total of $508.6 million in fines and penalties. Although this is a drop from both the number of companies which resolved FCPA enforcement actions and aggregate amount of fines and penalties paid over the previous year, this number is still significant. One need only take a look at the reported ongoing FCPA investigations to see that there is still significant enforcement occurring. As to the ‘aggressive’ DOJ enforcement, remember these enforcement actions against companies are made largely through self-disclosure. If the DOJ does not believe that there is a sufficient basis to bring an enforcement action, it will decline to prosecute the company.

What can be portended by the defeats at trial? First the whole notion that the Lindsey Manufacturing company defendants were somehow acquitted or over-zealously prosecuted is just plain wrong. They were found guilty and this guilty verdict was thrown out due to prosecutorial misconduct. As to O’Shea, it appears that the trial judge concluded that the government simply did not have enough evidence to get it to a jury. While it appears that the O’Shea case should not have gone to trial, the government at least put enough evidence forward to get to trial.

Such was not the case in the Gun Sting trials, where it appears the jury both (a) did not think the defendants were guilty, or (b) leaned so heavily towards acquittal that no unanimous decision could be made. It is still not clear why the government failed so miserably with the juries in the Gun Sting trials. It may be that people do not understand why the government would set up an apparently legitimate business transaction and then overlay a corruption case on it. After all, everyone understands that any business dealing involving illegal narcotics is illegal from the get-go. It does not matter if bribery and corruption are involved, the entire transaction is illegal. It may be the jurors did not feel the same about an underlying transaction which was clearly legal; here the sale of armaments to a foreign government, something the US government does on a routine basis.

It may also be the jury simply did not believe or even like the government’s star co-operating witness, Richard Bistrong. As reported by the FCPA Professor, Bistrong pled guilty long before any of the 2010 arrests in the Gun Sting case. He pled guilty back in 2009 which means that at least some of the time he was working undercover for the government, he had already pled guilty. This fact may have persuaded the jury in the Gun Sting trials that his testimony did not support the illegal conduct that the government claimed it supported. Or as asked by the FCPA Professor, in a post entitled “Will Bistrong’s Plea Impact The Africa Sting Cases?”, “What impact will Bistrong’s plea have in the Africa [Gun] Sting case – particularly the defendants’ expected entrapment defense?” It may have been quite a bit.

As your company’s compliance officer, what should you make of all this? My take is that you had better double down on your compliance program because I believe that the DOJ will refocus its efforts where it will have the most success, with enforcement actions against corporations. Why do I say this? First of all, there is the self-disclosure issue noted above which is now compounded by the Dodd-Frank Whistleblower provision. Second is the new norm of industry sweeps, and remember these started long before Johnson & Johnson who agreed, as part of its DPA, to turn in its competitors for alleged FCPA violations. Also name one company which will go to trial? The answer is easy because it’s none, nada, zilch and zero. After Arthur Anderson, no public US Company will go to trial in a FCPA case and risk a guilty verdict. Lindsey Manufacturing and the individual defendants went to trial because they were the company and the company was them.

So what is my take on the effect on ongoing FCPA enforcement of the failure of the DOJ to convict any of the Gun Sting defendants at trial? Once again, Absolutely nothing!

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

January 12, 2012

When the FCPA Professor Writes, You Should Read It

As many compliance practitioners are aware, the FCPA Professor (in real life, Professor and Ironman Triathlete Mike Koehler) writes a daily blog on all things relating to the Foreign Corrupt Practice Act (FCPA) from the legal perspective. It is a great resource and one that you should put on your daily reading list. However, as a professor he also writes lengthier, law review articles, with his in-depth analysis and commentary. This month we are treated to an excellent law review article entitled “Big, Bold and Bizarre: The Foreign Corrupt Practices Act Enters a New Era”. Coming in at a hefty 50 pages, it is his analysis and commentary of “using 2010 FPCA enforcement actions, related developments and how big FCPA enforcement has become.” It is an excellent and most welcomed resource for the compliance practitioner who needs a solid review of where the FCPA enforcement year has been and what it may portend for the future.

The Professor divides his article into four parts. In Part I, he reviews the specifics of FCPA enforcement in 2010, what he terms the “big, bold and bizarre.” In Part II, he reviews the increased scrutiny of the FCPA, by courts who faced increased legal challenges due to increased individual prosecutions, Congressional scrutiny and business and legal commentary. In Part III, he reviews some legal developments related to the FCPA, such as Dodd-Frank and debarment legislation. In Part IV, he takes a look at the FCPA road ahead.

Big, Bold and Bizarre

A. Big. The Professor lists some of the raw numbers generated through FCPA enforcement actions. The Department of Justice (DOJ) and Securities and Exchange Commission (SEC) garnered almost $1.8 billion in fines, penalties and profit disgorgement through FCPA enforcement actions.
B. Bold. Here the Professor recounts that the DOJ “continued to push the envelope as to enforcement theories in two specific areas.” The first is regarding the definition of who is a ‘foreign official’ under the FCPA and the second revolves around the interpretation of “obtain or retain business” and facilitation payments under the FCPA.
C. Bizarre. Here the Professor looks at both general fact patterns and some specific enforcement actions. Generally, he notes that in the majority of DOJ enforcement actions, the eventual DOJ fine or penalty was at an “amount below the minimum range suggested by the [US] Sentencing Guidelines.” He also discussed some of the specific matters he believed had “bizarre patterns” such as Innospec, BAE, Digi International and the Giffen prosecution.

Increased Scrutiny

While noting that the increased scrutiny actually began in Q3, 2009 with the release of the Chamber of Commerce Whitepaper and Senate Judiciary Committee hearing, 2010 brought a more thorough debate in both Congress and the private sector. This included the House Judiciary Committee hearing in June as to whether the FCPA should be made less robust to facilitate job creation, judicial scrutiny in the form of some high profile individual prosecutions, where federal district courts had to directly confront challenges to the FCPA on what are ‘instrumentalities’ under the Act and who is a foreign governmental official. In the private sector, the Chamber of Commerce kept up its attack on the FCPA as anti-competitive and there was also bar and NGO commentary on the FCPA.

FCPA Related Developments

Obviously the passage of Dodd-Frank had a very large impact on the 2010 FCPA discussion. The Professor noted that “Many predict that Dodd-Frank’s whistleblower provisions will greatly increase the number of FCPA enforcement actions.” In addition to his Dodd-Frank discussion, he reports on the passage of the ‘Overseas Contractor Reform Act’ by the House, which would have debarred any company from doing business with the US government if it sustained a final judgment of a FCPA violation. However, the legislation was not passed by the Senate so it died in the last session.

The Road Ahead

The Professor concludes his article by noting that “the years ahead will likely see more of the same big, bold and bizarre developments as 2010.” One development he believes should continue is the increase in the scrutiny of the FCPA, both by Congress and continuing review and commentary by others, such as the Professor (and I). While noting that some have viewed discussion about FCPA reform as akin to “paving the way for business to go on a bribery binge”; the Professor clearly believes in the value of continued discussion and debate on how to achieve the goals of the FCPA is appropriate and necessary.

The article is well worth your time to read and see where we have been and where we might be going. If you needed one article to give you the information to provide to management on FCPA enforcement, trends and commentary from last year; this is it. While you may, or may not, disagree with the Professor’s conclusions, you cannot have a better resource from which to review the facts.

The FCPA Professor’s website has several nifty features, one of which is a Jobs Board
This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.
© Thomas R. Fox, 2012

January 4, 2012

From Whistleblower to RICO Claimant

The holiday season is past and many of us have returned to work. However, if you are a Chief Compliance Officer (CCO) there is a gift that you may wish to give yourself, it is “The Whistleblower’s Handbook – A Step-by-Step Guide to Doing What’s Right and Protecting Yourself” authored by Stephen Martin Kohn, Executive Director of the National Whistleblowers Center. I do not suggest that CCO’s purchase this volume for their own protection, although the former Chief Executive Officer (CEO) of Olympus might have been able to use it before he was fired by the Olympus Board last October. No, I suggest that CCOs purchase this because many others in your company may well do so and it is the best single volume collection of all laws, rights and obligations related to whistle-blowing that I have come across.

I thought about Kohn’s book when I came across a couple of whistleblower related items last month. The first one was an article in the December 28, 2011 edition of the Wall Street Journal (WSJ), entitled “Internal BNY Mellon Documents Show Panicby Jean Eaglesham and Michael Siconolfi. In the article they report on some of the emails and other documentary evidence that whistleblower Grant Wilson was able to obtain during the two year period that he was operating “as a government informant” while employed by Bank of New York Mellon (BNY). The WSJ obtained this evidence through an open-records request. Wilson was part of a group which brought a series of whistleblower lawsuits against BNY, which have led to several states, and the Manhattan US attorney, filing civil suits against BNY. Eaglesham and Siconolfi also reported that “the bank’s [BNY] foreign-exchange traders grew concerned about a leaker” and in an earlier WSJ article, entitled “Secret Informant Surfaces in BNY Currency Probe”, reporter Carrick Mollenkamp stated “BNY Mellon sought to discover the insider’s identity and to fight the lawsuits.”

I quote that final line because of a December 15, 2011 Court of Appeals decision from the Seventh Circuit Court of Appeals, styled “DeGuelle v. Camilli et al”, which is a whistleblower retaliation claim. As reported by Richard Renner, in an article entitled “Major Victory for Whistleblowers in Seventh Circuit Says Retaliation is a RICO Violation, in the Whistleblowers Protection Blog, the Court of Appeals found valid a claim for damages under the Racketeer Influenced and Corrupt Organizations Act (RICO) for the retaliation against a whistleblower who provides information about corporate fraud to law enforcement officers under Sarbanes-Oxley Act (SOX).  SOX itself makes it a felony to retaliate against whistleblowers who bring forward such information.

The SOX provision in question states that Congress made it a crime to:

“knowingly, with intent to retaliate, take[] any action harmful to any person, including interference with the lawful employment or livelihood of any person, for providing to a law enforcement officer any truthful information relating to the commission or possible commission of any Federal offense[.]” 18 U.S.C. 1513(e).

The novelty and significance of the Seventh Circuit decision is that it held “When an employer retaliates against an employee, there is always an underlying motivation. In this case, for example, the motivation was to retaliate against DeGuelle for disclosing the tax scheme. Retaliatory acts are inherently connected to the underlying wrongdoing exposed by the whistleblower.”

This means that any company which terminates or in any other way retaliates against a whistleblower may have engaged in a violation of RICO, which itself is a criminal statute. This becomes relevant to Foreign Corrupt Practices Act (FCPA) whistleblowers through the Dodd-Frank Whistleblowers provision. In excerpts from the final Securities and Exchanges Commission (SEC) comments, they stated “Employees who report internally in this manner will have anti-retaliation employment protection to the extent provided for by Section 21F(h)(1)(A)(iii) of the Exchange Act, which incorporates the broad anti-retaliation protections of Sarbanes-Oxley Section 806, see 18 U.S.C. 1514A(b)(2).” In other words, if a person reports internally to a company or externally to the SEC of a FCPA violation and there is retaliation against that person, a RICO claim may arise.

Ladies and Gentlemen, this is scary stuff so your company had better be ready and have a robust investigative protocol in place when an internal report is made. And train, train, train and really, really, really mean it when your company says that it will not retaliate against an employee for making an allegation of a FCPA violation.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

January 3, 2012

Ten Compliance Issues from 2011

I have seen several lists of the Top Foreign Corrupt Practices Act (FCPA) issues of 2011. Sam Rubenfeld and Chris Matthews at the Wall Street Journal’s Corruption Currents have been interviewing several of the top legal practitioners on their thoughts. The ever-present Mike Volkov has weighed in with his list and his “Person of the Year”, the Chief Compliance Officer. Howard Sklar and I even got into the video act by discussing our most significant issues in “This Week in FCPA”. So as part of the compliance commentariati, I submit, for your consideration, my Top Ten anti-corruption and anti-bribery issues over the past 12 months.

1.         Amendments to the FCPA? The Senate ended 2010 with hearings focusing on why there were not more individual prosecutions under the FCPA. In June, the House Judiciary Committee focused on ways to ease up on or gut the anti-corruption provisions of the FCPA in the name of US “competitiveness” overseas. Then in a stunning turnaround, the House Judiciary Chair asked the Department of Justice (DOJ) representative if the DOJ would support a ban on all commercial bribery, not just a ban on bribing foreign governmental officials. Then again he did say was drafting amendments to the FCPA which we haven’t heard about since the great theater in June.

2.         UK Bribery Act goes live. For many in the anglophile world, the event of the year was the marriage of Prince William to Kate Middleton. However, for us in the anti-corruption and anti-bribery world, it was effective date of the UK Bribery Act, July 1. While some had opined that the Bribery Act was “the FCPA on steroids” the initial prosecution under the Bribery Act was for a £500 bribe paid to a UK court clerk. Perhaps it just takes awhile for UK steroids to kick in.

 3.         Crystal Ball Reading. One does not have to read a crystal ball or tea leaves to know what should constitute a best practices compliance program. The DOJ continues to respond to calls for information by practitioners and the commentarati by providing solid information through which you can implement or enhance your compliance program. In addition to continuing to list the 12 points in a minimum best practices compliance program in each Deferred Prosecution Agreement (DPA)/Non-Prosecution Agreement (NPA) released; the DOJ has provided ‘enhanced compliance obligations’ in DPAs which provide information on evolving standards. Back in January, the DOJ provided information on areas of risk which should be assessed to inform your compliance program.

4.         Chief Compliance Officer Upgrade. With the effective changes in the federal sentencing guidelines from November, 2010 and the DOJ comments this year, it has become clear that companies must give a more prominent role to the Chief Compliance Officer and separate that function from that of the General Counsel.

5.         Investigating Private Equity. Both the DOJ and Serious Fraud Office (SFO) announced that they would be looking at private equity, in conjunction with anti-bribery and anti-corruption. Well known for cost reductions through cutting corporate budgets, they may become a prime and profitable set of targets for enforcement agencies.  Additionally, their unique structure of separately operating portfolio companies may greatly increase ownerships control and person risks. If you are in private equity and are reading this and have no clue what I am talking about, get on the phone to one of Howard Sklar’s recommended FCPA counsel ASAP.

6.         It Just Can’t Get any Weirder. Just when you think you have seen it all in the FCPA world, News Corp., is accused of bribing Scotland Yard to further its newspaper business and it is also alleged that a lawyer representing a US company in Mexican litigation attempts to bribe a court official to obtain a favorable ruling. Then, of course there is Olympus, which not only fires its whistle-blowing Chief Executive Officer (CEO) for questioning Red Flag payments to agents, which reveals that it has been engaged in a decade long corporate fraud. But here’s the topper in my book, someone posted a comment to my blog post about Tyson’s Foods paying bribes to the wives of Mexican food inspectors to obtain ‘favorable treatment’. She said the following “The meat being TIF-certified for export was not meat distributed to U.S. The meat was being exported to countries such as Japan and other Asian destinations.” I am sure that is of great comfort to the folks in “Japan and other Asian destinations”. Memo to Tyson: Call Gini Dietrich at Spin Sucks for some serious PR help.

7.         Plaintiff’s Bar gets that old time (FCPA) religion. The FCPA was used, in a somewhat novel manner, in three civil actions which may portend an entire new wave of private and civil FCPA litigations. In SciClone a shareholder derivative action was filed after the announcement of a FCPA investigation. During the pendency of a FCPA investigation, this civil action was settled with the company agreeing to implement a best practices compliance program. In Alba v. Alcoa a company whose employees were allegedly paid bribes (Alba) sued the alleged bribe-payor (Alcoa) for damages in driving up the costs for products sold because of the corrupt acts of Alcoa. In ICE, the Costa Rican telecom company sought to use the victim restitution component to allow it to participate in the DOJ’s FCPA settlement with Alcatel-Lucent.

8.         Rule of Law. Several DOJ prosecutions of individuals under the FCPA have brought a plethora of legal rulings to flesh out legal standards under the FCPA. In the spring, there were district court rulings on whether a state owned enterprise is covered by the FCPA and an analysis of what constitutes a state owned enterprise. These cases will probably be appealed so we may have the first US court of appeals’ interpretation of the FCPA in quite some time.

9.         Wide World of Enforcement. More countries are implementing new anti-corruption laws and more resources are being dedicated to enforcement. The US has had significant cooperation with the UK SFO and Financial Services Association (FSA) and this will increase with the go live date of the Bribery Act. However, the BRIC countries have passed, or are considering, significant anti-corruption laws. The US is starting to coordinate and share more information with these countries — China being the most significant.  For global companies, this increase will portend greater numbers of fines and penalties and will complicate international settlement efforts.

10.       Year of the FCPA Trial. This was the year that the DOJ brought out the big trial guns for three very high profile FCPA trials: the Gun Sting cases; Lindsey Manufacturing; and Haitian Telecom. The resolution results have been mixed, with convictions in Lindsey and Haitian Telecom; mistrial in the first of four Gun Sting trials and some dismissals in the second Gun Sting trial. However, the government has taken a black eye for some procedural missteps, particularly the judge throwing out the entire guilty verdict for prosecutorial misconduct in the Lindsey Mfg. case.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

December 5, 2011

SEC Issues First Whistleblower Report—Results Are Mixed

Filed under: FCPA,Russ Berland,SEC,Whistleblower — tfoxlaw @ 1:31 am
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BerlandR_web.jpgEd. Note-today we have a guest post from Russ Berland, who gives a report on the SEC’s first whistleblower report. 

Those within the compliance and regulatory arena have eagerly awaited the SEC’s first whistleblower report. The report, issued last week, offers mixed results for the program and foreshadows the future utilization and effectiveness of the program. The most significant facts in the report are that no money has yet been paid to whistleblowers under the Dodd-Frank Act and in seven weeks, the SEC fielded 334 submissions from whistleblowers.

In February 2011, the SEC created the Office of the Whistleblower. The creation of the Office was precipitated by the Dodd-Frank Act, specifically Section 924(d) of the Act. The Proposed Rules for Implementing the Whistleblower Provisions specified under Regulation 21F became effective on August 12, 2011. In general terms, the whistleblower provisions allow whistleblowers to collect up to 30 percent of levied fines for bringing tips or evidence of fraud or other irregularities to the attention of the SEC.

The report provides only seven weeks of data because the rules became effective on August 12, 2011, and the SEC’s fiscal year ends on September 30. Highlights of the report include:

  • Since the program’s inception, the Office has received 334 tips and fielded 900 calls from consumers;
  • The most common complaint categories were market manipulation (16.2 percent), corporate disclosures and financial statements (15.3 percent), and offering fraud (15.6 percent);
  • Some of the tips came from outside the United States; and
  • While the SEC has already posted 191 matters that meet the requirements to be eligible under the program, because of timing requirements no whistleblower awards were paid under the program in fiscal year 2011. That likely will change in 2012.

A copy of the complete report is available here.

Russ Berland is Of Counsel at the law firm of Stinson Morrison Hecker LLP and can be reached at via phone at 816.691.3180 and via email at rberland@stinson.com. 

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IT’S NOT TOO LATE TO SEE THE BRIBERY ACT GUYS

On December 7, myself, Mike Volkov and the Bribery Act guys, Richard Kovalevsky QC and Barry Vitou will be making their only US appearance this year. Mike and I will review some of the more significant enforcement matters of 2011 and discussion lessons which may be drawn from them. Richard and Barry will discuss the Bribery Act. Best of all the event is free and CLE will be provided. Event details and registration are found at http://events.r20.constantcontact.com/register/event?llr=myqi4pcab&oeidk=a07e55t5re06e78f1e3. I hope you can make it!

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. 

December 2, 2011

USING THE INTERNET TO YOUR COMPANY’S ADVANTAGE IN DEFENDING AGAINST A WHISTLEBLOWER ACTION

Ed. Note-today we have an interesting post from frequent guest Michelle Sherman. 

The wide dissemination of news on the Internet through “new media” online sites such as the Huffington Post, well recognized blogs like the Drudge Report, or social media sites such as Twitter is changing how we get our news today.  The Internet is also making it harder for someone to be the first and original source for allegations of corporate malfeasance that can be the basis for a whistleblower or false claims action.  In other words, businesses who are defending themselves against a whistleblower or qui tam (false claims) plaintiff (collectively, “whistleblower”) should exhaustively search the Internet for evidence showing that the whistleblower is not the “original source” of the information.

1.  Section 922 Of The Dodd-Frank Wall Street Reform And Consumer Protection Act.

Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act provides that the Securities and Exchange Commission (“SEC”) shall pay awards to eligible whistleblowers who voluntarily provide the SEC with original information that leads to a successful enforcement action yielding monetary sanctions of over $1 million. Whistleblowers can recover from 10 to 30 percent of the total monetary sanctions collected in the SEC’s action or any related action, so there is a real financial incentive for someone to report suspected wrongdoing.  Section 922 of Dodd-Frank also added Section 21F to the Securities Exchange Act of 1934, and Section 21F reflects these incentives to whistleblowers.

According to the SEC’s May 25, 2011 press release, Section 922 defines original information as information that “must be based upon the whistleblower’s independent knowledge or independent analysis, not already known to the Commission and not derived exclusively from certain public sources” such as the news media.

Because the public policy behind whistleblower statutes is to reward the reporting of alleged wrongdoing that may otherwise go undetected, the statutes do not allow for bounty rewards to plaintiffs who are not the original source of the information.

Thus, a whistleblower, who provides information that is already known and discoverable through a blog post, Twitter or other social network activity, may have trouble satisfying an essential element to recovering the mandatory award under Section 922.

2.  The False Claims Act And The Public Disclosure Bar.

Similarly, the False Claims Act includes a public disclosure bar which provides that courts shall dismiss qui tam suits when the relevant information has already entered the public domain through certain channels, including the news media, unless the action is being brought by the Attorney General or by a person who is the original source of the information.  31 U.S.C. § 3730(e)(4)(A).  Section 3730(e)(4)(A) also allows the government to stop dismissal of the action by opposing the dismissal.

The public disclosure bar was added by Congress to the False Claims Act “in an effort to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits.” Graham County Soil and Water Conservation District v. United States ex rel. Wilson, 559 U.S. __, 130 S. Ct. 1396 (2010).

Recent amendments to the False Claims Act left unchanged the defense that information available in the news media cannot form the basis for a qui tam plaintiff being able to maintain his action.

3.  Why The Public Disclosure Bar Should Include Activity On The Internet Including Blogs, Online News, And Social Network Sites Such As Twitter.

With the exponential growth of the Internet, the meaning of news media has expanded and, thereby, created more opportunities for a company to assert the public disclosure bar.  The definition of “news media” in Wikipedia highlights this broad scope:

“The news media are those elements of the mass media that focus on delivering news to the general public or a target public.  These include print media (newspapers, newsmagazines), broadcast news (radio and television), and more recently the Internet (online newspapers, news blogs, etc.)” (emphasis provided).

The New York Times has also reported on how many stories are being covered online these days instead of through print editions:

“Crucial to the Times’s approach in a time of less print space is City Room, the fourth most popular blog on the NYTimes.com.  It is where The Times dishes breaking news and a creative menu of features, columns and digital novelties.  In City Room, a whole new kind of metro report emerges, with most of its 3,000 plus blog posts a year never surfacing in print.”  Arthur S. Brisbane, New York Times, Covering Its Own Backyard (Oct. 23, 2011).

In Graham County, the Supreme Court specifically cited to the broad scope of the news media component of the public disclosure bar when the Court recognized it includes “a large number of local newspapers and radio stations.”  As we have seen with online news sources such as the Huffington Post, which AOL acquired for $315 million, and which had an estimated 25 million monthly users at the time of the sale, new media can have a far greater reach than a small town local newspaper that is included in the news media category of the public disclosure bar.

WikiLeaks is also a good example of how confidential information was first publicized  through the Internet, and ahead of an alleged whistleblower.  A New York Times article described how much WikiLeaks (and the use of the Internet to dump confidential information) has changed the whole nature of whistle blowing:

“Whistle-blowers in possession of valuable and perhaps incriminating corporate and government information now had a global dead drop on the Web.  Traditional news organizations watched, first out of curiosity and then with competitive avidity, as WikiLeaks began to reveal classified government information that in some instances brought the lie to the official story.”  David Carr, New York Times, Is This the WikiEnd?” (Nov. 6, 2011).

4. Conclusion.

Consequently, a company is well advised to search the Internet for discussions concerning the allegations that form the basis for a whistleblower’s action.  Industry specific blog sites are a good starting point since they often carry gossip concerning companies in that industry.  Twitter is also a good resource since it has the most real time news updates, and often scoops the mainstream media as we saw with reports of the earthquake in Japan and its aftermath, the United States finding and killing Osama bin Laden (with a local resident live tweeting the storming of the compound), and the political upheaval in Egypt (described as the “Twitter revolution”).  YouTube is also a good resource as evidenced by the video that quickly went viral in which University of California, Davis campus police were seen spraying students with pepper spray.

Michelle Sherman is special counsel at Sheppard Mullin Richter & Hampton where she practices business litigation and consults with businesses on legal and regulatory compliance issues relating to social media and the Internet.  Michelle is the editor and contributing author to the law firm’s Social Media Law Update blog.

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If you are going to be in Houston on December 7, myself, Mike Volkov and the Bribery Act guys, Richard Kovalevsky QC and Barry Vitou will be making their only US appearance this year. Mike and I will review some of the more significant enforcement matters of 2011 and discussion lessons which may be drawn from them. Richard and Barry will discuss the Bribery Act. Best of all the event is free and CLE will be provided. Event details and registration are found at http://events.r20.constantcontact.com/register/event?llr=myqi4pcab&oeidk=a07e55t5re06e78f1e3. I hope you can make it!

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This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. 

November 15, 2011

The SEC Whistleblower Program: A Game-Changer for FCPA Violations

Ed. Note-today we host a post by Jordan A. Thomas.

Jordan A. ThomasIn August, the Securities and Exchange Commission (SEC) finalized and implemented a whistleblower program enacted under Dodd-Frank, which will dramatically alter the landscape for public and private companies alike. This program, and its first cousin, the SEC cooperation program, will have a game-changing impact on the detection, punishment and deterrence of violations of the Foreign Corrupt Practices Act (FCPA). Indeed, in the SEC’s November 2011 release highlighting enforcement activity over the fiscal year ending in September, the agency’s Foreign Corrupt Practices Act Unit, formed in 2009, recorded its first 20 FCPA enforcement actions in the fiscal year.

During my tenure as a senior attorney at the SEC, I played a leadership role in drafting the provisions of the whistleblower program and served as the first National Coordinator of the cooperation program. Both programs emerged as a response to the serial misconduct pervading the commercial marketplace.  And, importantly, both programs recognize that for law enforcement to be more proactive and effective in identifying unlawful conduct in domestic markets and abroad, it needs greater participation from the public at large.

While the private sector’s role in the broader enforcement context is an established part of American jurisprudence, that role has diminished in recent years.  Some of this can be attributed to recent court decisions that limit the role of private litigants in securities enforcement.  But another reason likely rests on the fact that coming forward to report misconduct has historically rendered the whistleblower persona-non-grata at best, and, worse, exposed to tremendous personal and professional risk.

In this way, the whistleblower program is revolutionary.  The program provides significant financial incentives (10-30% of the monetary sanctions collected) to whistleblowers providing original information about possible violations of the federal securities laws.  The new anti-retaliation protections are also robust, protecting qualified whistleblowers for up to 10 years, regardless of whether their good-faith reports are ultimately verified.  Additionally, whistleblowers may remain anonymous until they wish to receive their award – if they are represented by counsel.

The broad reach of these regulatory developments creates serious implications for business across the globe.  The reported misconduct may occur anywhere.  Any violation of US federal securities laws qualifies.  International organizations and individuals that do business or have personal contacts with the US can be subject to jurisdiction.  A whistleblower may be any individual or group of individuals, regardless of citizenship, that provides information not known to the SEC or solely derived from public sources.

Given that FCPA violations are both common and the subject of increased law enforcement focus, it is a safe bet that numerous FCPA enforcement actions will be initiated as a result of whistleblowers.  (This trend is certainly confirmed in my own law practice.)  Furthermore, since the monetary sanctions in this area are large and headline-grabbing, whistleblowers will have a greater incentive to come forward. Consider the record Siemens settlement in 2008, under which the company resolved FCPA charges for $1.6 billion in fines, penalties and disgorgement of profits, including $800 million to US authorities.  A qualified whistleblower, meeting the various eligibility requirements, could have received up to $240 million under the new SEC whistleblower program. 

This is an area of serious multi-agency scrutiny.  FCPA enforcement actions have doubled since 2009.  According to the SEC’s website, in the first half of 2011, ten different enforcement actions have reaped half a billion in penalties from blue-chip companies, including Johnson & Johnson and IBM.  Significantly, because many FCPA actions have parallel proceedings by DOJ, whistleblower awards, which extend to related actions, are likely to be even higher.

Illustrating the financial significance of the parallel proceedings for whistleblowers, in April 2011, the SEC announced a settlement with Johnson and Johnson to resolve charges that the global giant violated the FCPA by bribing public doctors in several European countries and paying kickbacks to Iraq to illegally obtain business.  J&J agreed to pay more than $48.6 million in disgorgement and prejudgment interest to settle the SEC’s charges and an additional $21.4 million to DOJ to settle criminal charges.

Also in April, the SEC and Comverse Technology, Inc. reached a settlement in connection with alleged FCPA violations. Comverse offered to pay approximately $1.6 million in disgorgement and prejudgment interest to the SEC and $1.2 million in criminal penalties to the Department of Justice.

In May 2011, the SEC entered into its first ever Deferred Prosecution Agreement (DPA) under the cooperation program with Tenaris S.A.  The investigation focused on allegations that the global manufacturer violated the FCPA by bribing Uzbekistan government officials during a bidding process to supply pipelines for transporting oil and natural gas.  Under the terms of the DPA, Tenaris must pay $5.4 million in disgorgement and prejudgment interests and an additional $3.5 million criminal penalty in a Non-Prosecution Agreement with the Justice Department.

As US enforcement bodies ante up their efforts and expand their reach, the trend is gaining traction in other jurisdictions.  The UK Bribery Act, finalized this past July, extends to any company with a UK office, employees who are UK citizens, or a company that provides services to a UK organization.  The fines are unlimited and the Act has a broad jurisdictional reach, affecting the majority of US public companies.  In addition, in October of this year, the UK Serious Fraud Office launched “SFO Confidential,” a hotline for insiders to report fraud and corruption.  This development marked a major shift in position because the Financial Services Authority has historically discouraged external reporting and does not guarantee confidentiality to whistleblowers.

These parallel developments in the UK signal a larger recognition that regulators need to think outside of geographic and investigative boundaries.  As both the FCPA and Bribery Act have extraterritorial reach, so too does the recognition that whistleblowers can and should play a key role in reporting such violations.

What’s a company to do?  Invest.

As business grows ever more global, expansion into emerging markets is an exciting and promising commercial reality.  But it is also rife with exposure.  Companies need to invest in transparency, invest in compliance and invest in their people.  Even companies with top-notch corporate compliance programs must be on their guard.  Given the significant retaliation protections and major financial incentives, whistleblowers will come forward to report FCPA violations.  People with original information should be encouraged to report internally, protected from retaliation when they do, and assured their reports will be properly addressed.

This is a bare minimum of corporate integrity.  In a world where FCPA enforcement actions are on the rise, and reputational damage can level a company, not meeting this bare minimum is a cost no company can afford.

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Jordan A. Thomas is a partner with Labaton Sucharow and Chairs its Whistleblower Representation Practice.  He previously served as a senior attorney with the SEC and DOJ.   He can be reached via email at jthomas@labaton.com and via phone at 212-907-0836.

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Episode 23 of This Week in FCPA is up. Check Howard Sklar and myself as we discuss the Lanny Breuer speech at the ACI National FCPA Conference, Olympus, the Bribery Act and more.

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